Tuesday, February 27, 2024

New foreign forestry rules ‘not much of a barrier’ 

Neal Wallace
‘Benefit to NZ’ test won’t halt purchase of farms for forestry, says BLNZ.
Sam McIvor of Beef + Lamb NZ wants restrictions on the amount of forestry that emitters can use to offset their carbon emissions. Photo: Phillip Capper/Wikimedia Commons
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A farming leader fears changes to rules governing foreign forestry investment will not halt the purchase of farms for planting into trees.

The government has raised the threshold that foreign investors must meet to be allowed to buy farmland to convert to production forestry, but Beef + Lamb NZ chief executive Sam McIvor said he believes they will find a way to comply.

Figures released by the Overseas Investment Office (OIO) reveal that from 2019 to 2022, the government approved the sale of 71 farms covering 64,430ha to foreign buyers for conversion to forestry under its permissive special forestry test policy.

Over that same period, an additional 192,483ha of existing forestry in 62 blocks were sold to offshore interests.

Sales of farms for conversion peaked in 2022 at 28 properties covering 24,240ha. The low was 2020 when there were 11 farms covering 5707ha.

Over the 2019-2022 period a total of 256,915ha were sold to foreign investors for forestry.

There will be additional approvals of sales that were lodged before the new policy, the Overseas Investment (Forestry) Amendment Act, came into force on  August 16.

The change means sales of farmland for conversion to forestry must meet a “benefit to New Zealand” test as opposed to the more permissive special forestry test.

Information supplied by the OIO says this higher threshold will ensure forestry conversions continue to benefit New Zealand and is the same threshold  that applies to most overseas investment in non-urban land.

The special forestry test will remain for purchases of existing forestry land – but has not and will not apply to carbon forestry.

Treasury documents released alongside the new policy say the former policy provided little discretion for decision makers. 

McIvor said the new tests are broad and he believes investors will find a way to meet them.

“I don’t think it will prove much of a barrier for the ongoing purchase of land for forestry.”

To meet the general benefit test, investors must use the land exclusively, or nearly exclusively, for forestry activities, replant after harvesting unless exempt, and not live on the land. 

They must also prove that the investment will provide economic benefits, benefits to the natural environment, public access and protection of historic heritage. They must show that they are advancing a significant government policy, and provide for oversight or participation by New Zealanders and consequential benefits.

McIvor remains critical of allowing land to be converted for carbon forestry, saying there are examples of class six land now being planted in trees for carbon.

He wants restrictions on the amount of forestry that emitters can use to offset their carbon emissions, but says the government is not in agreement.

“New Zealand is quite unique globally by allowing 100% offsetting in the Emissions Trading Scheme,” McIvor said.

In contrast, California allows only 10%, so emitters have to take tangible steps to reduce their emissions.

“Our argument is that 100% offsetting just kicks the can down the road. At the same time it is driving distortion because it is so lucrative when you look at predictions of where the carbon price is going.”

McIvor said the government is considering including some parameters around carbon forests such as fire, pest and disease management, but the details are still vague.

He would like carbon forestry to be integrated into existing farm and land use.

He also understands iwi concerns about limiting forestry to offset carbon emissions as they need to generate income off their land.

“I am sympathetic and I think the key is how you integrate carbon farming into an existing farming operation without losing food production, export volumes and without undermining rural communities,” McIvor said.

ANZ reports the quarterly auction of NZ Units hit $85.40/unit this week, 12.3% higher than at the same time last year and slightly below the $87/unit spot market.

A year ago, it was $76/unit, with a unit equivalent to a tonne of carbon dioxide equivalent.

Just 4.825 million units were traded this week, the volumes restricted due to the government’s cost containment reserve (CCR), used to dampen the market, being fully used for this year.

So far this year 21.475m units have been traded.

“Spot prices have trended higher over the past quarter with a significant uplift in the market in late July when the Climate Change Commission (CCC) recommended the government should reduce the volume of NZUs auctioned from next year onwards, and also significantly increased the price which would trigger release of additional units from the CCR,” ANZ said.

The CCR was this year triggered at $70/unit but the commission proposes a two-tiered pricing system with triggers at $171/unit and $214/unit, at which point additional NZUs are released.

ANZ warned this will reduce by 38% the volume of NZUs allocated next year until the trigger price is reached.

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